Boston, MA -- (SBWire) -- 05/04/2013 --Core Views
In line with our expectations, the economy expanded by 6.2% in 2012. For 2013, we believe that the economy is set to reap some benefits from the regional uptick in growth, and we expect growth to come in at 6.1%. At the same time, we are keeping an eye on Indonesia's deteriorating political environment, and note that risks of more serious policy intransigency are growing.
Yet another high profile corruption case has rocked President Yudhoyono's Democratic Party (PD), with PD Chairman Anas Urbaningrum being forced to step down following bribery allegations.
As such, Yudhoyono's anti-corruption profile has sustained yet another heavy blow, and the PD's prospects ahead of 2014's elections continue to shrink. Meanwhile, reports of a schism within the PD threaten to further undermine the government's legislative efficacy over the short-term, with the possibility of a nationalistic sea change in the run-up to 2014 elections looming progressively larger.
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Major Forecast Changes
We have downgraded our 2013 average forecast for the rupiah to IDR9,700/US$ versus IDR9,400/US$ previously in line with ongoing stresses seen in Indonesia's external position.
We have upgraded Indonesia's 2012 fiscal deficit forecast from 2.9% of GDP to 2.5%. However, we note that the government continues to struggle with efficiency issues as a result of its burdensome energy subsidy programme.
We have upgraded our 2013 GDP forecast from 5.6% to 6.1% as we expect Indonesia to reap the benefits of an uptick in regional growth. In particular, we believe that support for Indonesia's key commodity exports will soften the investment slowdown while also helping to stabilise the country's ailing current account, which fell into a larger than expected deficit equivalent to 2.7% of GDP in 2012.
We have downgraded our 2013 current account forecast to a deficit equivalent to 2.5% of GDP, versus 2.1% previously. While this still represents an improvement from current levels, it is nevertheless indicative of the substantially worse external position that Indonesia finds itself in following 2012's deterioration.
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